Follow Mike Linkedin Facebook
Email Mike Email
Residential Real Estate
Feb 22, 2021

The Big Three: Occupancy, ADR, and RevPAR

Sponsored Content provided by Mike Harrington - CEO & Owner, Carolina Retreats

The key to optimizing a vacation rental property's performance? It’s all about understanding the Big Three: Occupancy, Average Daily Rate, and Revenue Per Available Rental Night.

Identifying trends in these three key performance indicators – and their relationship to each other – can help you maximize revenue throughout the year.

Occupancy Rate:

The percentage of nights occupied by guests out of the total nights in the period.

Occupancy rate = Nights sold / total nights

The occupancy rate is a quick and easy look at the percentage of units that are filled by guests. However, it doesn’t account for owner stays or holds. This is why we recommend looking at the available occupancy rate.

Available occupancy rate = Nights sold / (total nights – owner Stays – holds)

High occupancy rates are good. However, if occupancy rates are too high, it’s probably because your rates are too low – which means you’re leaving money on the table. Remember, the higher the occupancy, the more wear and tear your property can endure. It also may not leave adequate time for maintenance. Keep in mind that the goal is to maximize revenue – not merely the occupancy rate. Which is why we also need to pay attention to ADR and RevPAR.

Average Daily Rate (ADR):

The average Unit Revenue paid by guests for all the Nights Sold in a given period.

Average daily rate = Total Unit Revenue / Nights Sold

The occupancy rate is a reflection of how many nights you’ve sold, while ADR is the average of how much you sold them for. High ADR is generally better because it means you’re making more money for every night sold. However, if ADR is too high, your occupancy rate will inevitably drop. Again, the goal is to maximize revenue, not ADR. That’s why we also need to pay attention to RevPAR.

Revenue Per Available Night (RevPAR):

RevPAR takes into account both the average rate at which you booked the property and the number of nights it was booked.

RevPAR = Occupancy x ADR

or

RevPAR = Total unit revenue / total nights in a given period

ADR and Occupancy are stand-alone metrics, giving you a very limited view of your property's performance. RevPAR, on the other hand, provides a far more comprehensive view, as it incorporates both rental revenue and occupancy. If you only pay attention to one KPI, pay attention to RevPAR.

Here’s a quick illustration:

Scenario 1: A property’s nightly rate is set to $230 a night and the unit is 100% occupied for available nights, making the RevPAR $230. The revenue for the full year is $83,950.

Scenario 2: The nightly rate for the same property is set to $300 and the unit is 80% occupied for available nights, making the RevPAR $240 (80% Available Occupancy x $300 ADR). The revenue for the full year is $87,600.

If you only look at occupancy, scenario 1 appears preferable and you should set your rate for this property at $230 a night. However, annual revenue is much lower at that rate. In scenario 2, the property is priced higher, so you have fewer guests and occupancy is lower – but the annual revenue is much higher.

RevPAR accounts for these critical differences. Moreover, it identifies the scenario that maximizes revenue. And maximizing revenue is the goal.

This article was contributed on behalf of Carolina Retreats by Key Data Dashboard, the #1 trusted vacation rental data source for professional vacation rental managers.


Mike Harrington is the CEO & Owner of Carolina Retreats, a specialty lodging and vacation rental management firm serving more than 300 vacation property owners throughout the Cape Fear region. Before founding Carolina Retreats in 2015, Mike spent 10 years on the Outer Banks as CEO and General Manager of Resort Realty, a high end real estate sales and vacation rental company with 600 properties under management, five offices, and more than 100 full-time employees and real estate agents. Mike is a Past-President and Board Member of the Vacation Rental Manager's Association (VRMA), the largest international trade association for the vacation rental industry, as well as Past-President for the North Carolina Vacation Rental Manager's Association (NCVRMA). He is frequently asked to speak at seminars and trade conferences on the latest vacation rental management trends in marketing, operations, and strategy. Mike holds a MBA from East Carolina University, as well as a Bachelor's Degree in Business Management and serves as an Advisory Board member for East Carolina's School of Hospitality Leadership. 

Other Posts from Mike Harrington

Carolinaretreats logo3 101620123447
Ico insights

INSIGHTS

SPONSORS' CONTENT
Gretchen roberts 2021

New Requirements for Small Businesses: Beneficial Ownership Information Reporting

Gretchen Roberts - Red Bike Advisors
Untitleddesign2

The Importance of Real Estate Appraisals

Steve Mitchell - Cape Fear REALTORS®
2022052 75 142344351

Bridging Futures: The Case for Toll Funding in Wilmington’s Cape Fear Memorial Bridge Revamp

Natalie English - Wilmington Chamber of Commerce

Trending News

Bank, Nonprofit Look To Lease Skyline Center Space From City

Emma Dill - Feb 19, 2024

Homebuilders Association Adds Taylor As Director Of Business Development

Staff Reports - Feb 20, 2024

Insurance Company Leases Space In Upcoming Midtown Office Building

Cece Nunn - Feb 20, 2024

Coffee Shop, Bar Takes Flight In Downtown Wilmington

Laura Moore - Feb 21, 2024

Local Women's Impact Network Announces Board Officers, Members

Staff Reports - Feb 20, 2024

In The Current Issue

Trouble Brewing: How A Social Media Post Bubbled Over For A Wilmington Brewery

Social media can influence which local breweries are favored among patrons and restaurants. This dynamic played out recently with an online...


Locals Cook Up Kitchen Concepts

Local chefs and restaurant industry owners are setting up shared kitchens, some with an entrepreneurial drive....


Gadgets Boost Area’s Biotech

“AI is starting to weave itself into our social culture. Say you have a wearable on 24/7; you don’t even know it’s there,” said Morris Nguye...

Book On Business

The 2024 WilmingtonBiz: Book on Business is an annual publication showcasing the Wilmington region as a center of business.

Order Your Copy Today!


Galleries

Videos

2023 Power Breakfast: Major Developments